Historical Volatility

The historical volatility is calculated using past price data for a specific time period. The number is sometimes smoothed using moving averages or other mathematical methods. The historical volatility furnishes one of the best indications of what the volatility of the market may be in the future, because it provides a reference frame on what the volatility of the market was in the past.

A 10-day volatility refers to the volatility of the market over a 10-day period. The volatility of a market may change depending on the time frame measured. Some markets may be more volatile in the short term than the long term, and vice versa. Notice how the short-term volatility is sometimes greater, and other times less than the long-term volatility. In essence, the short-term volatility is more volatile than the long-term volatility. The curve is upward sloping, flat, or negatively sloped, similar to an interest rate curve.

Seasonal Volatility

Certain markets tend to be more volatile at different times of the year. The grains often become more active in the summer due to possible drought and supply problems. Orange juice futures can be quite volatile during the winter when a crop freeze may occur.